Air­lines to take hit from ris­ing oil price

China Daily (Hong Kong) - - BUSINESS - By ZHU WENQIAN zhuwen­qian@ chi­

Chi­nese air­lines are ex­pected to bear the brunt of a ris­ing oil price af­ter OPEC came to an agree­ment to limit pro­duc­tion, and air­lines are likely to levy fuel sur­charges on do­mes­tic and in­ter­na­tional flights, ex­perts said.

On Wed­nes­day, OPEC reached a con­sen­sus on pro­duc­tion cuts to ease ex­cess global in­ven­tory, send­ing oil prices jump­ing.

“The oil price rise will have a cer­tain neg­a­tive ef­fect on do­mes­tic air­lines. Air­lines have very weak abil­i­ties to re­sist the fluc­tu­a­tions of oil prices, and it will be a chal­lenge to the busi­ness growth of air­lines,” said Li Xiao­jin, a pro­fes­sor of avi­a­tion eco­nom­ics at the Civil Avi­a­tion Univer­sity of China in Tian­jin.

“Air­lines should take some steps to hedge against the risks. They can pre­pare to levy fuel sur­charge on pas­sen­gers and take other mea­sures to re­duce oil con­sump­tion, as the im­pact is likely to be long-term,” said Li.

Since Fe­bru­ary 2015, all do­mes­tic air­lines have stopped levy­ing fuel sur­charges, as a re­sult of the cost de­clines of fuel pro­cure­ment.

Li said in the near fu­ture, oil prices are un­likely to surge fur­ther or drop sig­nif­i­cantly. For pas­sen­gers, they may con­sider the to­tal costs of tak­ing flights, and some are likely to choose trains in­stead on some routes to save money.

Mean­while, Chi­nese air­lines are suf­fer­ing the pains of a weak­en­ing yuan. In Novem­ber, the yuan con­tin­u­ously de­pre­ci­ated against the dol­lar, ex­ceed­ing mar­ket ex­pec­ta­tions.

The de­pre­ci­a­tion of the yuan will cause ex­change losses for do­mes­tic air­lines.

In the first half of this year, ma­jor do­mes­tic air­lines, in­clud­ing Air China, China Eastern and China South­ern, all recorded for­eign ex­change losses of an­other 1 bil­lion yuan yearon-year, that is nearly half of their net prof­its in the first half, ac­cord­ing to their earn­ings re­ports.

“The yuan is likely to stay weak against the dol­lar for a while. Air­lines need to ad­just their li­a­bil­ity com­po­si­tions, speed up the re­pay­ment of dol­lar debts, and take other steps such as is­su­ing bonds in yuan and loans in mul­ti­ple cur­ren­cies,” said Su Bao­liang, an an­a­lyst at Si­no­link Se­cu­ri­ties Co.

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